How to Shop for a Mortgage

After hitting record lows of 3.250% last year, mortgage rates have inched up a little and in the grand scheme of things…it is only a little!  The trend of course is upwards and like the stock market, it is not a straight line up, we have good days and bad days in the markets and Mortgage Rates can sometimes and do change a few times inside a trading day. These rate changes are influenced by the global economy and while rates are still extremely low, refinancers and homebuyers are always looking for the lowest. Rates trade in real-time and react to each little development. But these lows come and go in minutes during specific trading intervals each trading day. And this kind of volatility drastically changes the way consumers should shop for a mortgage.  Because markets move up and down so fast right now, the rates you see in mainstream media* headlines are long gone by the time you can do anything about it.

SO HERE’S HOW TO SHOP FOR A MORTGAGE IN THIS NEW WORLD.

Shop For Loan Agents, Not Rates

Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate.

Here’s what happens when shoppers focused only on rate get quoted by a good loan agent: Loan agent quotes a rate only after they’ve analyzed the client’s entire financial profile and analyzed their home’s value and condition—also known as pre-approving them. The client will either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else. Then 80% of those cases come back to that loan agent because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.

Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms.  What’s not the same lender to lender is the loan agent’s ability to: (1) advise properly, (2) analyze borrower and property profiles, and (3) close with no surprises. So shop to find the lender and loan agent you feel most confident can perform on these three things. Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it.

These guidelines are for refinancers. For homebuyers, you can’t lock a rate until you’re in contract to buy a home, but once you’re in contract, the same approach applies.

Rate Targeting

Their are two reasons for the pre-approval and rate targeting tactics discussed above:

(1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on.

(2) Rate lows are here and gone in minutes each trading day as mortgage bonds rise and fall on economic and technical trading signals. So if you don’t first get pre-approved then set a rate target with a standing lock order, it’s nearly impossible to hit the lows AND close with no surprises.  Your loan agent also must be able to brief you daily or weekly on the market outlook, so if you’re not sensing market competence from your agent, then keep shopping. A loan agent must have a strong read on what’s impacting the rate market ups and downs to deliver you the best terms.

*Mainstream media is almost always off the mark on rate data and commentary. Conversely, Mortgage News Daily strives to provide accurate and realistic rate data and commentary daily. Still, the premise of this piece is to explain what a mortgage consumer must do to manage extreme rate volatility.

Do you have any questions?  Feel free to call or email anytime!!

Bill Nickerson can be reached at 978-273-3227 and email at bill@billnickerson.com

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Mortgage Pre-Qualification vs. Pre-Approval

In Today’s Mortgage World, it is more important than ever to have an actual Approval in hand when shopping for a home.  An actual approval may take a few days, even a week, but I assure you, your Realtor with thank you and the process will  be much smoother.

Pre-Qualification

A mortgage loan pre-qualification is an estimate of how much house you can afford and how much money a lender would be willing to loan you.  The best time to get pre-qualified is right before you start looking at homes.  This way you can focus on looking at houses that are within your price range.  By providing a loan officer with your income, assets, debts, and a potential down payment amount, he would then be able to give you a ballpark figure of how much he thinks you could afford to pay for a monthly mortgage.  There is no cost to this service and no commitment is required.  This estimate is a helpful tool to you in figuring out if buying a home is a viable option, and if so, what your price range would probably be. A pre-qualification is only an estimate to give you a range of home prices and in no way is a commitment to lend on a home.

Pre-Approval

Getting pre-approved means that you have a tentative written commitment from a lender for mortgage funding.  In the pre-approval process, you provide a loan officer with actual documentation of your income, assets, and debts.   The Loan Officer is submitting this as if it is an actual loan and a property has been identified.  This will be reviewed by the lenders underwriting team.  The lender will run a credit check and verify all your employment and financial information. Once the final approval comes in, the lender will give you a letter of commitment stating how much money the bank is willing to loan you for a home purchase. Having a certified pre-approval in hand when you start house hunting lets real estate agents and sellers know you are serious about buying when they see you have your mortgage funding in place.  By having your funding in place, it becomes an extreme advantage over other buyers when it comes to negotiating your home purchase as your offer will stand above the rest and you will be able to close in a much shorter time period.closing-costs guy

It is important to note that a pre-approval and a pre-commitment is still subject to further review as any loan is.  As variables change in lending or in the borrowers financial picture, additional items may be required. In addition to the financial commitment, the lender will also need to verify the property appraisal and title search.

Bottom Line:     

Pre-Qualification is an estimate of a price range of what you can afford.     Pre-Approval is a verified commitment from the bank stating how much money it will loan you. Make sure your Pre-Approval is an actual commitment from the bank as opposed to a Loan Officer just doing a quick credit check.

For More Information about Loan Approvals, Loan Programs and mortgages that are best suited to your financial needs, contact me anytime.

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What are Closing Costs?

Originally posted on Bill's Mortgage Information:

Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers in Massachusetts, closing costs will come to about $2600 plus lenders title insurance and any pre-paid items such as real estate taxes, insurance and interest. Empty Piggy Bank

There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:

Third Party Fees (The Hard Costs)

  • Attorney’s fees (yours and your lender’s if applicable)
  • Appraisal
  • Credit Report Fee
  • Loan origination fee (covers lender’s administrative costs)
  • Recording fees
  • Plot Plan or Survey fee
  • Title insurance (yours and your lender’s)
  • Loan discount points
  • Any documentation preparation fees

Pre-Paid Items:

  • Property taxes (to cover tax period to date)
  • Interest (paid from date of closing to the following first of the month)
  • First payment to escrow account for future real estate taxes and insurance
    • 3…

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So Why Do Mortgage Rates Change So Much??

Have you ever called a mortgage company and received a quote and then called back the next day and the same rate was no longer available? Mortgage companies and borrowers are subject to potential daily and even hourly shifts in the market. Interest rates fluctuate on the simple principal of supply and demand.   Global 1

Mortgage rates trade based on Mortgage Back Securities and The Bond Markets as well as the overall economy.  The vehicles that mortgage rates are based on are considered very conservative, stable and tend not to have the wild swings that one would find in the Stock Market.  If the Stock market begins to see large increases or decreases, Investors will shift Billions of dollars in and out of the Stock Market and move them in to the Mortgage Markets.  This will cause mortgage rates to either rise or fall.  Stock Market tanks, good news for Mortgage Rates, Stock Market rallies and rates suffer.   Investors and Traders will constantly shift funds out of the riskier stocks into the safe haven of the mortgage markets.  These shifts can occur as little as once a day or in some cases can happen multiple times during a trading day. Thus causing mortgage rates to possibly change multiple times in a day.

These markets are affected globally as well; so even after the markets are closed in US, whatever is happening in Europe, Asia and around the world will cause our markets to move one way or the other. The following is the headline from this past Friday:

Tensions in Ukraine flared up again this week, causing investors to shift assets from stocks to the relative safety of bonds. Weaker than expected economic,data in China also favored bonds over stocks, while the US economic data was roughly neutral. As a result, mortgage rates ended the week lower. 

Here are some of the variables that are being watched in today’s market:

  • Ukraine
  • China’s Economy
  • The US Housing Market
  • Unemployment in our Country
  • The Price of Oil and Gas
  • The “Feds” decision to move short term interest rates
  • The overall health of the US Economy

Any of these items can trigger a rally one way or another.  Even a simple comment at a breakfast meeting by the President, the Fed Chairman or someone in power is enough to influence the markets.

Additional Mortgage Rate and Index Information:

To help us understand why mortgage rates change, it is important to realize that there is not one interest rate, but multiple ones. Below are some of the most prevalent interest rates and indexes that also have an impact on mortgage rates:

Prime rate – This rate is often offered to a bank’s best customers. If you are shopping for a home equity line of credit, then it is important to familiarize yourself with the prime rate. HELOCs are typically based upon the prime rate -plus or minus a certain percentage.

LIBOR – Stands for London Inter-bank Offered Rates. Libor rates are based upon the rates that a select group of London Banks offer each other for inter-bank deposits. Many adjustable rate mortgage programs use the Libor index.

Treasury bill rates ”T-bills” and Treasury Notes – These are short-term and intermediate debt instruments used by our Government to finance their debt. The treasury index is based upon the auctions of U.S. Treasury bills or on the Treasury’s yield curve. Like the LIBOR index, the U.S. Treasury index is a popular index for adjustable rate mortgage products. Also, the Twelve Month Treasury Average (12 Month MTA) is a popular index which is based upon the twelve month average of the monthly yields of U.S. Treasury securities (maturing in one year). The MTA is a popular choice for option arm mortgage programs.

Treasury Bonds – Unlike T-bills and Treasury Notes, treasury bonds are long-debt instruments. These bonds are used by the U.S. Government to finance its debt.

Cost of Savings Index – often referred to as the COSI index. This index is based upon the annual average of interest rates on World Savings deposit accounts. The average is pulled on the last day of each month.

11th District Cost of Funds – Often referred to as the COFI index – The COFI index is based upon the average of the borrowing cost to member banks of the Home Loan Bank of San Francisco of the 11th District. Unless you are shopping for an option arm mortgage, it is unlikely that your loan will be affected by this rate.

Certificates of Deposit Index – Often referred to as the CODI index – this index is arrived at by calculating the average of the past twelve months rates of 3 month CD rates.

Federal Funds Rate – The fed funds target rate is the rate which federally chartered banking institutions lend balances to other depository banks overnight.

This is a lot of information to weigh each day when calculating mortgage rates.  In general, most Banks, Investors, Lenders etc. will set rates around 10:30am once most of the morning economic reports have been released and the markets have had time to react to the information.  In a calm trading day on Wall Street, these rates would be good for that imagesCA6UKL3Jday.  In a day where lots of Economic reports and World events are occurring, these rates can be reset a few times.  It is important to call your lender or bank often to check on these rates as they can and will change.  It also important not to follow online rate sites that may be posting Average Rates as this information can be old.  The Freddie Mac rates are based on closed loans from last week and an average of .7 Points of fees in the rate. This may give you a range, but not accurate enough to base your mortgage payment on or what is happening today in the markets.

Please leave a comment, email or call me anytime with questions you may have about mortgage programs, rates and to get approved for a mortgage.

Bill Nickerson, Branch Manager of Merrimack Mortgage Company.  179 Great Road, Acton MA 01720   NMLS# 4194  www.billnickerson.com

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Bill Nickerson

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What affects your credit?

Did you know that a large portion of your mortgage approval and mortgage rate are based on your credit scores.  In today’s market, it is now more important than ever to pay attention to your credit scores as well as the balances you keep.fico

Credit scores were developed by Fair Isaac and Company (FICO). The models created using FICO take all the detailed information about your credit report and produce your credit score using different weights and factors contained in the FICO models. The purpose of a FICO score is to show how likely you are to become at least 90 days late in making payments in the next 24 months based on patterns in your credit history, compared with patterns of millions of past customers.

Fair Isaac divides the scoring range into five risk categories

  • 780-850 low risk
  • 740-780 Medium, Low Risk
  • 690-740 Medium Risk
  • 620-690 Medium High Risk
  • 620 and Below, High Risk or “Non-Prime”

Each of the three major credit bureaus uses their own version of the FICO scoring model.

Factors influencing your credit score are:

  • Current or Late payments
  • How late the payments are
  • Number of open accounts you have
  • How much credit you are using in relation to how much credit you have available
  • If there are serious delinquencies on your file like bankruptcy, liens and charge of accounts

Your credit score is a snap shot, in that it is developed at the time of inquiry by a credit grantor pulling your credit file.  Your credit score can change with the passage of time as well as the addition of new information to your credit file.  As delinquency information in your file ages, it’s negative on your credit score lessens.

Credit Scoring is a snapshot, in that it is developed at the time of inquiry by a credit grantor pulling your credit file. Your credit score can change with the passage of time as well as with the addition of new information to your credit file. As delinquency information in your file ages, it’s negative affect on your credit score lessens.

Credit Scoring uses the following five areas of information to calculate the score:

  • Payment history 35%
  • Amounts owed 30%
  • Length of credit history 15%
  • New credit inquires 10%
  • Type of credit used 10%

It is best to keep balances low on credit cards and other revolving accounts – maintain balances below 50% of the available credit limit. 24% is optimal. The best way to improve your score is to pay down revolving debt.

An inquiry is defines as a request by a lender for a copy of an applications credit report.  Inquiries on a credit report for two years, but credit scores only look at inquiries in the last 12 months.  Your own request for a credit report to review for accuracy is not considered in question manyour credit score.

Apply for new credit accounts only when you need them. Remember that closing accounts does not make them go away. A closed account with a poor payment history may become a more recent account because the date of activity will change.  An open account with a low or zero balance is better than a closed account.

DID YOU KNOW?

  • Fico scores are used not only for a mortgage and credit cards, but for auto loans, insurance and utilities
  • Credit reports reflect charge offs or collection accounts for up to 7 years and bankruptcies for up to 10 years.
  • You can order a free credit report annually, at no charge, without impacting your credit score
  • Paying off an old collection may result in a drop in your credit score
  • Consolidating credit cards increases your ratio of debt to available credit and lowers your score.
  • Using the maximum amount on a credit line can drop your score by 100 points

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Half Full?

A psychologist walked around a room while teaching stress management to an audience. Half FullAs she raised a glass of water, everyone expected they’d be asked the “half empty or half full” question. Instead, with a smile on her face, she inquired: “How heavy is this glass of water?”

Answers called out ranged from 8 oz. to 20 oz.

She replied, “The absolute weight doesn’t matter. It depends on how long I hold it. If I hold it for a minute, it’s not a problem. If I hold it for an hour, I’ll have an ache in my arm. If I hold it for a day, my arm will feel numb and paralyzed. In each case, the weight of the glass doesn’t change, but the longer I hold it, the heavier it becomes.”

She continued, “The stresses and worries in life are like that glass of water. Think about them for a while and nothing happens. Think about them a bit longer and they begin to hurt. And if you think about them all day long, you will feel paralyzed – incapable of doing anything.”

Remember to put the glass down…

I found this on the internet of course, and could not find a source to give credit.  It was a very clear message and wanted to share it.  Enjoy!  ~Bill

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3.5% down on FHA Rehab Loans

Have you ever wanted to buy a fixer upper?  Did you know FHA offers a few different types of rehabilitation loans?  The Streamline FHA is one of the most common Rehab Home 2loans available.  This allows you to add an additional $35,000 to your base mortgage to improve or upgrade your home prior to moving in. The same low down payment of 3.5% is required and a minimum Credit score of 640.  Gifts are available as well as seller credits, go here to learn more about that. Seller Concessions and Gifts.

The list below is a general outline of all the items you are able to repair, fix and even replace. 

  • Repair/replace roofs, gutters and downspouts
  • Repair/replace/upgrade of existing HVAC systems
  • Repair/replace/upgrade of plumbing and electrical systems
  • Repair/replace existing flooring
  • Minor remodeling, such as, kitchens, which does not involve structural repairs
  • Exterior and interior painting
  • Weatherization: including storm windows and doors, insulation, weather stripping, etc.
  • Purchase and installation of appliances. Appliances may include free-standing ranges, refrigerators, washers, dryers, dishwashers and microwaves
  • Improvements for accessibility for person with disabilities
  • Lead based paint stabilization or abatement of lead based paint hazards
  • Repair/replace exterior decks, patios, porches
  • Basement refinishing and remodeling, which does not involve structural repairs
  • Basement waterproofing
  • Window and door replacements and exterior wall re-siding
  • Septic system and or well repair or replacement
  • 10% contingency reserve with a maximum of $2,500; 15% with no utilities on or foreclosed property

Rehab Home

The FHA 203K Rehab loan is a great way to get into a home that may need a little work or a full transformation.  For more information about Rehab Loans, call or email me anytime.

Email:  Bill@billnickerson.com or call me on cell:978-273-3227

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FHA Gift Funds and Seller Concessions

As much as things change in the mortgage industry, many things stay the same.  If you are applying for an FHA Mortgage, did you know that you can still Free Moneyreceive gift funds from several different sources?  Did you know the seller can give up to 6% of the sales price to the buyer to be applied towards closing costs? It can never hurt to ask your family, the sellers as well as your employer when purchasing a home.

Gift Funds:

Gift funds to be used towards the purchase of a home are allowed from a family member, borrower’s employer or labor union, a charitable organization, governmental agency, or public entity that has a program to provide home ownership assistance to low and moderate income families or first time homebuyers or a close friend with a clearly defined and documented interest in the borrower. A gift letter is required. Transfer of the gift funds must be documented. The file must document that the gift funds were from an acceptable source and were indeed the donor’s own funds.

 Seller Contributions:

When you submit an offer to purchase a home, it is common to ask if the seller will give a credit back to be applied to closing costs.  In the case of FHA mortgages, you are allowed up to 6% of the sales price toward actual closing costs, prepaid expenses, discount points and other financing concessions. Also included in seller contributions are interest rate buy downs and payment of Up Front Mortgage Insurance Premium (UFMIP). Each multiple offersdollar exceeding the 6% must be treated as an inducement to purchase.

Here are some great ideas and tools for your buyers with limited funds.  FHA requires a credit score of at least 640, A down payment of 3.5% of the purchase price.

If you have any questions about FHA Mortgages of FHA 203k rehab loans, feel free to call or email me anytime.  I can be reached at 978-273-3227 or email me at bill@billnickerson.com

 
 
 
Bill Nickerson
179 Great Road, Suite 214
Acton, MA 01720
978-273-3227 cell
 
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3% Down and No Mortgage Insurance

With all the news about small down payments disappearing with Government regulations, Mass Housing still offers its mortgage program that features Low Down Payments, as little as 3% down with No Mortgage Insurance!  This product provides financing (purchase or refinance) up to 97% of the appraised value of the home without the hefty mortgage insurance payments that are typically associated with low down payment programs.Percent Down

This special program is available for owner occupied; one to four family properties including condominiums on both purchase and refinance transactions. With a low fixed rate, the down payment can be a gift on single family homes.  The MassHousing Mortgage with No Mortgage Insurance is a great choice for low and moderate income homebuyers.

Features:

  • As little as 3% down on single-family homes and condos
  • As little as 5% down on 2, 3 and 4-family homes
  • No mortgage insurance required
  • Income limits as high as $123,660 in many cities and towns
  • Fannie Mae loan limits apply, borrower up to $417,000
  • Approved community second mortgages allowed
  • Credit scores as low as 660 (additional conditions may apply)

Advantages:

  • Gift funds can be the source of the down payment on single family homes
  • The interest rate will never increase
  • Competitive fixed rates
  • Safe, fixed-rate limited cash-out refinance option

Call me to learn why this innovative program is an attractive alternative to an FHA mortgage!  Remember, this program allows for the same low down payment options as FHA with no mortgage insurance and in-house condo approvals!!

If you have any questions about this program, income limits or other low down payment programs, call or email me anytime!  I offer appointments for your clients 7 days a week as well as evenings.  Loan consultations and applications can be done in person, on the phone and even online.

Bill Nickerson  Branch Manager at Merrimack Mortgage    978-273-3227

Bill’s Email   Bill’s Website

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What’s the Point?

Unless you have bought a home, you probably haven’t heard the term point or mortgage point.  Or maybe you have heard the term but don’t quite know what it means.  Having a general knowledge of what a point is and how it works can help you to make important financial decisions when buying a home.

The cost of purchasing a point is equal to one percent of the total loan amount which is used to buy down the interest rate when buying a home.  For example, if the lender offers an interest rate of 4% on a $250,000 loan, and you decide that the payments are too high, you can offer to pay a point (1% of the loan amount) and this would reduce the mortgage rate.  The cost of a point in this example would be $2500.  So, is it worth the investment of the $2500 to save a little money off your monthly mortgage payment?

A point will traditionally buy down the interest rate by one Quarter of a percent (.25%).  It is important to understand the cost of the point, the amount of savings on your monthly mortgage payment and see how long it will take you to break even on the costs.

Here is some simple math:

Take the cost of the point (1% of your loan amount) and divide it by the monthly savings of the rate you have just bought down with points.  The answer:  60 months plus or minus a few months to recoup this cost on average.  If you know you will be in the house for 5 years or greater, or will not touch the mortgage (refinance), then this is worth it to you.  Another example would be if the sellers would be offering to buy points to make the home sale more attractive.

On a $250,000 loan, a 30 year fixed payment at 4.00% interest rate will cost you $1193 per month.  If you purchase one point (1% of the loan amount = $2500), your new interest rate would be 3.75%. Your new monthly payment would come to $1157, a savings of $36 per month. I divide the cost of the point, $2500, by $36 (my monthly savings).  This will give me the number of months it will take to recoup the cost of my investment.  In this case it will take 69.44 months or 5.78 years before you really begin saving.

In My Opinion:

In the case of buying points, it is not a wise investment because of the time it takes to recoup the costs.   These potential funds to purchase points can be earning far more in other investments.  So, unless the seller is buying down the points for you…don’t bother!

For more information about this article, please contact me at   Bill@billnickerson.com

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